Unofficial news and tips about Google

February 4, 2008

Could Google Save Yahoo from Microsoft?

Even if it's hard to believe that Yahoo will accept it, there's a simple way to make Yahoo more profitable: drop its search advertising service and use Google AdWords. Google has a better technology for ranking ads, a bigger inventory and higher click-through rates. If Google accepts to offer Yahoo most of the earnings, it's likely that Yahoo's profits will make investors happy again.

According to Wall Street Journal, "Google Inc. Chief Executive Eric Schmidt called Yahoo Inc. CEO Jerry Yang to offer his company's help in any effort to thwart Microsoft Corp.'s unsolicited $44.6 billion bid for Yahoo, say people familiar with the matter. (...) Google could play a role in attempts by others to outbid Microsoft, or by Yahoo to remain independent. Google could potentially offer money, or guaranteed revenue in return for a Yahoo advertising outsourcing pact, under that scenario."

There are rumors that Yahoo already negotiates with Google the outsourcing of its search ads in Europe. This could be a good news for Google, who also provides ads for Ask.com.

In a harsh post from the official Google blog, David Drummond is worried that Microsoft's acquisition of Yahoo could jeopardize Internet's openness: "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies -- and then leverage its dominance into new, adjacent markets. (...) Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM, and web-based services?"

It's not clear if Google is truly worried by this potential acquisition, since a Microsoft+Yahoo company would be very far from Google's dominant position in search and search ads*, while Yahoo's absorption would take a lot of time. Microsoft has already admitted that it can't compete with Google online by trying to acquire Yahoo and it chose a very bad moment in Yahoo's history to force the acquisition.

* According to Microsoft, Google gets 75% of worldwide revenues in search ads and has 65% search market share in the US and 85% in Europe.